Does Beta Move with News? Firm-Specific Information Flows and Learning about Profitability

Abstract

This paper …nds that the betas of individual stocks increase by an economically and statistically signi…cant amount on days of quarterly earnings announcements, and revert to their average levels two to …ve days later. The increase in beta is greater for large positive or negative earnings surprises, for announcements that resolve greater uncertainty, and for more liquid and more visible stocks. These empirical results are based on estimates of daily …rm-level betas obtained from intra-day prices for all constituents of the S&P 500 index over the period 1996-2006. These …ndings are consistent with a model of expectations formation in which investors learn about the pro…tability of a given …rm by using information on other …rms.

The Economic Relevance of Environmental Disclosure and its Impact on Corporate Legitimacy: An Empirical Investigation

“…Hope () documents a relation between forecasts' properties, analyst following and negative earnings. Patton and Verardo () observe that the increase in betas is greater for earnings announcements with larger positive or negative surprises, and with greater analysts' forecast dispersion. Furthermore, the increase in betas is greater for stocks with higher analyst coverage.…”

Anomalies and News

“…However, our results could be consistent with dynamic‐risk models, which allow for time‐varying risk premia and time‐varying betas. Papers in this spirit include Patton and Verardo (), who find that a stock's beta with respect to the market portfolio is higher on earnings announcement days and explain this finding with a dynamic‐learning model, and Savor and Wilson (), who develop a dynamic risk‐based model to explain why stock returns are higher on earnings announcement days.…”

Earnings Announcements and Systematic Risk

“…Patton and Verardo (2012) evaluate this idea in the context of firms' stock market betas. 2 If realized returns were only affected by cash flow news, announcing firm and market returns would be perfectly correlated, so that announcers' high returns would be fully explained by their market betas.3 This prediction is shared by models based on the resolution of uncertainty in the sense ofKnight (1921).…”